Are central bank projections rational?

Abstract

Central bank projections have gained considerable attention for monetary policy modelling. However, less is known about the nature of central bank projections. This letter explores the unbiasedness and rationality of more than 2000 growth and inflation projections published by 15 major central banks. The results indicate that central bank projections are rational and unbiased in most cases. Interestingly, inflation projections are more biased than growth projections.

Keywords:

• central banks
• projections
• rationality
• unbiasedness

JEL Classification:

• E37
• D84
• E58

Acknowledgement

I am grateful to Jörg Breitung, Zeno Enders, Ralf Fendel, Gernot Müller, Markus Reisinger, Christina Strobach and participants of the BGSE Macroeconomic Workshops for helpful comments and suggestions.

Notes

The index k denotes the forecasting horizon expressed in months (with k = 12, 11, …, 1 for current-year forecasts and k = 24, 23, …, 13 for next-year forecasts).